Perplexed by the Glee of Yahoo! Shorts

Late Friday, Dan Loeb's Third Point disclosed that it had sold 11 million shares of Yahoo! (YHOO). Some bears took it as a victory sign. Others rejoiced because they'd been hoping to buy the stock at a lower price.

Here's my take. First off, Loeb sold 14% of his stake in Yahoo!. This is not huge. He explained that he wanted to keep a stable level of ownership in the company, given the planned $5 billion in stock-buybacks that the board has authorized. Yahoo already retired 7% of its float last quarter, so Loeb's stake did proportionately increase.

The bottom line is that Third Point is still a large holder of the stock with three board seats.

This is not similar to the time when David Einhorn took a small stake in Yahoo! in early 2011, and then sold it in May of that year after the Alipay fiasco. In this situation, Loeb took a $200 million profit on what had been a $1 billion position from 18 months ago, which has gained 73% from its inception. Loeb still has $1.4 billion at risk here in Yahoo. That's skin in the game.

So I don't quite understand the glee of shorts and hopeful longs here. Do you think Loeb was sitting around his office saying, "OK, guys, I want to sell a small part of my holdings but then tank the value of 86% of my money at risk in Yahoo!. Any ideas on how we can do it?"

If Loeb still has most of his money at risk, why sell at all? I don't think his move is a matter of confidence. I think what Loeb did was to prepare the market for future small incremental sales he will make along the way as the stock rises to $30, and hopefully beyond that. He's now conditioned the market for a future 14% sale of his stake so the reaction will be: "Oh, that's no big deal. That's his pattern."

This also explains why the stock had a hard time breaking out Thursday and Friday last week. Now, perhaps, it can finally move back up after the strong January earnings.

Although there could be a drop in the stock first thing Monday due to Loeb's sale, I don't expect it to last for long. In fact, should it pull back, I believe it will start recovering and moving back up within an hour of the market open.

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